US safety regulators recently launched administrative enforcement action against Amazon. Read below on how this could lead to a precedent-setting decision that widens the scope of liability for e-commerce retailers in connection with third-party products that harm or kill consumers. Our US team considers the impact of this legal battle as it unfolds in the United States.
Over the past few years, state and federal courts have gradually been widening the scope of liability for e-commerce retailers. Now, Amazon has found itself in hot water as it may face liability for defective third party products advertised on its platform.
The U.S. Consumer Product Safety Commission (CPSC) – the government agency responsible for overseeing serious risks posed by consumer products – recently launched administrative action seeking to hold Amazon accountable for hazardous third-party products sold on its website. The agency’s complaint identified a number of consumer products on Amazon.com that failed safety standards. The governing federal law on product liability – the Consumer Product Safety Act (CPSA) – assigns the responsibility to recall such hazardous items to “distributors.” However, Amazon has maintained that it does not qualify as a “distributor” under the CPSA.
The CPSAdefines a “distributor” as “a person to whom a consumer product is delivered or sold for purposes of distribution in commerce.” The Act clarifies that “distribution in commerce” means “to sell in commerce, to introduce or deliver for introduction into commerce, or to hold for sale or distribution after introduction into commerce.” Under the typical e-commerce structure, Amazon neither receives nor purchases products from its third-party suppliers because third parties sell their products directly to consumers and only using Amazon’s platform as a go-between. In these circumstances, Amazon’s activities fall outside the statutory definition of “distributor,” and Amazon has therefore been able to avoid duties and obligations imposed on distributors by the CPSA.
The CPSC’s current enforcement action argues that Amazon is in fact a “distributor” by virtue of its Fulfilled by Amazon (“FBA”) program. Through this program, Amazon ships items offered by third-party sellers to customers. According to the CPSC, the company’s involvement in receiving, handling, storing, and delivering FBA products meets the definition of “distributor of consumer products in commerce” as laid out in the CPSA.
If the CPSC’s arguments are successful, Amazon could face heavy fines for failing to recall dangerous third-party products and may also be exposed to claims from harmed consumers who were previously forced to seek remedies from small or remote third-party sellers. The ramifications would not be limited to fines and damages, however, as Amazon and other e-commerce retailers will need to rethink and likely restructure how they will monitor the thousands of items hosted on their respective sites. Because Amazon’s third-party sellers range in the scope and location of their operations, overseeing products for safety compliance will be an expensive and burdensome task.
Amazon has tried to get ahead of the game by taking steps aimed at (almost) satisfying the changes sought by the CPSC. Just last week, Amazon announced a new policy set to take effect on September 1st in which it will pay out claims of up to $1,000 for damages or injuries caused by third-party products sold on its website. In conjunction with this policy, Amazon also announced a network of insurance providers for its sellers and is revising its policy to require merchants to obtain products liability insurance after reaching $10,000 in sales after one month rather than three.
Will these changes be enough? It is uncertain how Amazon’s recent actions will impact the CPSC’s case. It is possible that the CPSC will see Amazon’s revised policies as a show of good faith and motivate the agency to reach a compromise rather than engage in a drawn-out legal battle against a company with unlimited resources. While the outcome of the CPSC’s administrative proceeding is significant, it simultaneously sparks a bigger question of whether heightened scrutiny for e-commerce liability is on the horizon.
There is no doubt that a growing momentum has been against companies like Amazon. In recent years, states legislatures have tried to widen the scope of liability that e-commerce retailers face for products distributed on their sites while customers have been fighting this battle in local courts, seeking to hold e-commerce retailers liable for damages. The results of these efforts have been mixed. Court decisions are varied and proposed legislation is often watered or voted down.
Historically, courts and legislators have been reluctant to modernize product liability law so that it properly accounts for e-commerce and other new products. However, a win for the CPSC would be a clear declaration that e-commerce retailers will be held responsible for products sold on their sites and will create a precedent that courts and legislatures alike need to consider going forward.
What does this mean for e-commerce retailers?
E-commerce retailers should expect the online marketplace to change in the future with liability becoming more aligned with the strict products liability regime currently governing traditional brick-and-motor retailers. Strict liability is an exceptionally high burden and means a defendant retailer is liable for the harm caused regardless of its intention. Because the online marketplace will likely shift to adopting this standard, e-commerce retailers should consider limiting their exposure on the front end by reevaluating what is sold on their sites and who is doing the selling. Companies should conduct a careful analysis of their business operations and begin considering ways in which they can better monitor third-seller products. This may involve improving vetting procedures or even limiting which vendors can sell on its site in order to limit its overall exposure. Taking the time to rework internal procedures now will be beneficial when change eventually occurs.
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